What comes after the Atlanta deal on the Trans-Pacific Partnership?
The 12-member Trans-Pacific Partnership (TPP) agreement was all but concluded last week after five years of negotiations.
The deal now faces the challenge of ratification in each of the 12
countries, with all their domestic political obstacles — including a
possible election year vote in the US Congress and the Australian
Senate.
In this week's lead Richard Katz reviews the
trip wires facing passage of the legislation through the US Congress.
The time has passed for correcting any flaws in the TPP settlement, he
points out, and Congress will either have to pass this TPP package or
none at all. Although its terms have yet to be publicly announced, the
question for legislators in all countries is whether the pact's benefits
outweigh its flaws.
'Looming
large over the debate in the US Congress is the immense veto power of
assorted well-connected, well-financed special interests. Too many of
those who claim to support “free trade” no longer mean a two-way street
in which the United States helps promote its own prosperity by promoting
that of its partners. Rather, they seek a system in which others open
their markets to favoured American business sectors, but the United
States is not expected to reciprocate'.
Clearly
President Obama wants to steer the TPP through Congress as early as
possible, with the target date being April next year. But there is talk
of delay because of next year's presidential elections, in which Hillary
Clinton, who's done a U-turn against the TPP, is still the likely
Democrat contender. One option
is to try to engineer passage through the 'lame duck' session of US
Congress next December after the election. United States Trade
Representative (USTR) Michael Froman is said to have given credence to
that tactic in the past few days.
Australia's Trade and Investment Minister, Andrew
Robb, stared down the USTR and the US pharmaceutical lobby on
restricting data protections on biologics — medicines made from living
cells and organisms — to five years instead of the 12 that the United
States wanted and that will make it easier to pass the Australian
Senate. It is difficult to justify extending monopoly protections for
intellectual property that would cost Australian consumers and inhibit
further innovation, as most of the evidence suggests. If
Australia was to change its patent laws, copyright and intellectual
property protections more generally, that should be done through
domestic debate and agreement.
In
situations where there is political consensus in most countries on
opening up to trade, but where narrow interests block broader benefits
to an economy, the TPP made some real gains. Australian, New Zealand and
other producers will have better access to Japanese
agricultural markets, beyond that achieved in the bilateral economic
partnership agreement last year. The US sugar market was never in play
but a small import quota has doubled and access increased in other
important areas in manufacturing and services.
While
market access issues were among the most contentious in the
negotiations, the biggest gains will come from the new rules and
standards that promote commerce in the 21st century. Making sure data
flows freely, markets are more contestable and improved transparency are
all worthy goals: we will know more about that achievement when details
of the agreement are made public. If it turns out that the outcome has
been defined largely by business interests at the cost of consumers,
ratification and further opening up to international competition will be
tougher.
The
TPP is not the end goal but should be seen as a step forward to
economic integration, lifting incomes and creating jobs. There are still
many other markets that would benefit from exposure to international
competition, both inside the TPP and beyond it. And the TPP creates some
problems that will need to be addressed.
The
main economic benefit for Vietnam, for example, derives from more
access to the US clothing and textiles market — an important export
market for Vietnam and one where the benefits appear so large as to
swamp any costs associated with signing up to new rules that seem more
suited to advanced economies. But that market access requires materials
and inputs to be sourced from within TPP countries. Not China,
Indonesia, India or any other non-TPP country. This problem affects not
just textiles but all trade that discriminates between trading partners.
Diverting trade away from non-members towards members means that trade
is simply being shifted around instead of new opportunities created.
The calculation for countries like China and Europe left
out of the TPP is not the same as it is for Vietnam. While China and
other developing countries aspire to high environmental standards and
better institutions, with reformers pushing hard for more transparency
and diluting the influence of state-owned enterprises, none of these
issues can be resolved simply by an international agreement mandating
it. They require the hard yards of reform, just as China's 15-year long
march to WTO accession in 2001 shows. The reformers in China can align
some of their domestic reform priorities to the TPP to act as a catalyst
but this will take time.
Both
Asia and TPP countries cannot ignore the established trade and economic
weight of China. There's no major business anywhere in the region,
including Japan, that does not
have to factor China in. With China out of the TPP for the foreseeable
future, the incentive to ramp up Asian economic ties will be more
powerful.
The
ASEAN plus six countries are parties to the negotiation of the Regional
Comprehensive Economic Partnership (RCEP), which has yet to receive the
attention that the TPP has but could still be more important
economically. It builds off ASEAN's agreements with China, Japan, South
Korea, India, Australia and New Zealand, and it accounts for a much greater share of Asia's economic interests than the TPP, incorporating the most dynamic elements in the global economy.
Getting
RCEP right so that it dilutes trade diverted by the TPP and other
agreements and helps India, China, Indonesia and others in Asia advance
their domestic reforms and openness, is now the top priority. And
hopefully East Asian arrangements will be open to US participation
sooner than the TPP is likely to be open to China's.
All
preferential trade and economic arrangements have the potential to
enhance (through making markets more contestable) or damage (through
redistributing business to higher-cost preferred sources of supply) the
world economy. The TPP is no different and includes positive and
negative economic features. It's the balance of benefits and costs that
count and that depends on the detail. The redistribution of business is
what buys political favours, not only within the participating
countries, but also in international political dealings. They are
agreements that affect who's left out as well as who is in the ring.
But
what we already know about the TPP is that this is more than anything
else a very big deal for the United States and Japan — as Robert Manning says,
it serves as a surrogate bilateral free trade deal that shifts the
partnership to a new level. We also know that if the deal were to fail
Congressional passage or fall over for other reasons, that it would be a
major disaster for US alliance relations with Japan and in Asia and the
Pacific more broadly.
Shiro Armstrong and Peter Drysdale
Editors, East Asia Forum
Crawford School of Public Policy | College of Asia and the Pacific | Australian National University
Canberra ACT Australia 0200
19 October 2015
Canberra ACT Australia 0200
19 October 2015